Loews hotel project wins clear path to tourism zone financing

State lawmakers have cleared a path for public incentives for a Loews convention center hotel in Downtown Memphis.

The House on Thursday passed an amendment extending to June 30, 2024, the deadline for Loews to open, with funding from a tourism development zone, and clarifying the TDZ revenues available to the project.

The House action, following Senate approval last week, appeared to lay to rest a question that had cast uncertainty on efforts to fund the Loews in part with new sales taxes generated at the property.

The amendment, led by Republican Rep. Mark White in the House and Democratic Sen. Raumesh Akbari in the Senate, won easy approval because of the potential economic value of the hotel, White said. The bill passed the House 93-0 Thursday and the Senate 31-0 Feb. 25.

“Everybody understands it’s for economic development for Memphis and the state of Tennessee,” White said.

Pending Gov. Bill Lee’s signature, the measure provides for Loews to use incremental growth in both state and local sales taxes, until the 2031 sunset of the Downtown taxing district; it provides for the hotel to keep its local sales tax increment for up to 30 years after the hotel opens. The public money would be pledged for project financing.

A tourism development zone is a special tax-financing district established by state law. The first TDZ in Memphis was established in 2001 in Downtown Memphis to finance convention center improvements. It was later expanded to include the Pyramid arena’s conversion to Bass Pro Shops and 2018 additions of Mud Island River Park and the riverfront.

A TDZ is allowed to keep incremental growth from the 7 percent state sales tax, above an established baseline, rather than that new money going to state government. The Downtown TDZ also receives new revenues from 1.75 percent in local sales tax, while 0.5 percent of the local tax goes to education.

The Loews hotel project has been structured as “a TDZ within a TDZ” because it's intended to be self-supporting and won’t draw from the larger Downtown TDZ’s revenues, city chief operating officer Doug McGowen said.

TDZ revenue is believed to be the largest public incentive aimed at luring the $220 million, 550-room hotel to a spot on Civic Center Plaza, across from City Hall and just south of the Memphis Convention Center. Also proposed are a Loews-specific tourism tax of up to 5 percent on sales within the hotel property, donated city land and a property tax abatement.

The General Assembly had previously acted to amend the TDZ law for the Loews project, last May. But the Tennessee attorney general and Department of Revenue later opined that the 2018 legislative action committed only the local portion of sales tax growth to the hotel, not the much larger state sales tax.

The discrepancy wound up being a point of contention for the Sheraton Memphis Downtown Hotel, when its owners filed lawsuits trying to block incentives for a perceived competitor.

Sheraton lawyers argued the economic viability of the Loews project hadn’t been demonstrated to the State Building Commission before the commission voted last December to make a Loews hotel eligible for TDZ revenue. The argument appeared to be based in part on doubt that local tax alone would be enough to finance the project.

The Sheraton’s lawsuit in Shelby County Chancery Court was dismissed in February, but the hotel owner filed an expanded lawsuit in Davidson County Chancery Court in Nashville.

Downtown Memphis Commission attorney James McLaren told the Building Commission last December that the 2018 TDZ amendment didn’t accurately reflect legislative intent.

McGowen, McLaren and Downtown Memphis Commission chief Jennifer Oswalt all said the city would ask lawmakers to clarify the law during the 2019 legislative session.

Until the latest amendment passed, however, the city and Loews had to proceed as if only the local sales tax increment would be available, McGowen said.

The amendment also added 18 more months for the Loews to be built using TDZ funding. The 2018 measure set a Dec. 31, 2022, deadline, but White said the hotel development team had identified subsurface infrastructure issues at the Main Street site that would make it take longer to build.

The timeline of Loews and its fellow New York-based development partner, Townhouse Management Co., calls for financing approval in the April-June quarter and construction beginning in the July-September quarter.

McGowen has said Loews’ detailed accounting of revenues and debt payments for financing purposes will be part of a development agreement with the city that should be finalized around the same time as Loews financing.